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Analysis: String of probes leads to hope of transparency

"Cracking down on insider trading is the first line of defense of minority shareholders' rights and interests. It is highly valued by markets across the globe."

--- Charles Yeh, Fu Jen Catholic University

Last Thursday, misfortune seemed to have hit Inventec Appliances Corp (英華達), the handset maker that produces iPod digital music players for Apple Inc, as it was unexpectedly raided by more than 200 investigators led by Banciao prosecutors. Five executives were arrested.

Only one day earlier, Lee Kun-yao (李焜耀), chairman of BenQ Corp (明基), the nation's biggest branded cellphone manufacturer, stepped out of the Taoyuan Prosecutors' Office late at night, looking dispirited after nine hours of questioning and being named a defendant and released on NT$15 million (US$453,090) bail.

Two weeks ago, Frank Huang (黃崇仁), chairman of Powerchip Group (力晶集團), which runs the nation's second-largest computer memory chip maker, Powerchip Semiconductor Corp (力晶半導體), was also named a defendant and released after more than 10 hours of questioning by Taichung prosecutors.

These high-profile business leaders and reputed companies were all accused of insider trading.

The past month's unusual raids and summons have shaken the market and sparked investor worries over whether the companies they have invested into might become the next targets.

"Despite the inevitable short-term impact on investor sentiment, the moves will in the long run lead to a change for the better in the equity market," said Krista Yue (余婉文), an analyst at Deutsche Securities Asia Ltd, by telephone last week.

As a developing market, the nation's level of managerial transparency lags behind that of more advanced markets, which has led to valuation discounts, Yue said.

The government has vowed to crack down on illegal trading activities to better police the market and keep up with best practices used in more advanced markets.

The involvement of big-income firms and heavyweight stocks favored by foreign investors have highlighted the events, as the Ministry of Justice reportedly aims to carry out probes into at least 40 questionable deals.

Taipei prosecutor Chuang Cheng (莊正) said the public can expect more to come in the near future as investigators step up their activities.

Chuang has been posted at the Financial Supervisory Commission, which regulates the capital markets, to ensure closer cooperation between the agencies involved in tackling financial crimes.

Commending the aggressive actions, academics said the public should be less worried about the effect on share prices and more supportive of the regulator's move to bolster shareholder protection mechanisms.

"Cracking down on insider trading is the first line of defense of minority shareholders' rights and interests. It is highly valued by markets across the globe," said Charles Yeh (葉銀華), director of Graduate Institute of Finance at Fu Jen Catholic University.

The government should demonstrate its determination by bringing wrongdoers to justice, he said.

Only this can help install the level of corporate governance that the regulator has been promoting and pursuing, said Yeh, who also serves as director of the university's Center for Corporate Governance.

Yue said she expects the government to push the level of corporate governance and transparency to levels that are in line with the best international standards -- a must if the nation wants to join the family of developed markets.

Also see story:
Editorial: Shareholders should take control

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